CREATE YOUR OWN BUNDLE OF TEMPLATES! CLICK HERE TO FIND OUT!

ACCOUNTING RECORDS

Taxpayers are required by law and regulations to keep and maintain accounting records in sufficient detail to enable them to make a proper return of income. The books and records kept must be sufficient to establish the amount of the gross income and the deductions, credits and other matters required to be shown in the tax return.

PRIMARY AND SECONDARY RECORDS

The primary records commonly used by all types of businesses, considering the different accounting systems and reporting methods of the business are invoices, vouchers, bills, receipts and other source documents which are also the supporting documents in the selling and buying of merchandise, services and other assets used in the business. For companies which require the use of inventories, the primary records include the detailed inventory list. Other primary records used in financial transactions are the cancelled checks, duplicate deposit slips, bank statements and notes.

The secondary records, regardless of the accounting method used by the taxpayer, include permanent books of accounts and working papers which summarize and list the individual documents including adjustments, when necessary. These records are properly classified in such a way that the taxpayer will be able to determine the financial status of his business in a given period of time and the profit and loss for the period.

REGULAR ACCOUNTING RECORDS

A. Journal – the book of original entry in which transactions affecting the business of a taxpayer are recorded consecutively day by day as they occur.

Journal consists of the following:

    1. Sales Journal. This is a book whereby sales on account are recorded which are supported by sales invoices and which are also the documents that will serve as the basis of recording the transactions in the books of accounts.
    2. Purchase Journal. This is a book used to record exclusively all transactions involving the purchase or acquisition of merchandise on account. The business document that serves as evidence of a purchase transaction is the purchase invoice.
    3. Cash Book. This a book whereby all transactions involving cash such as cash receipts or cash disbursements are recorded.

Types of this book are the following:

        1. Cash receipts book — a book whereby all transactions involving cash receipts of whatever source are recorded.
        2. Cash disbursements book — a book whereby all transactions involving cash or check disbursements are recorded.
B. Ledger - is a book of final entry wherein the classified accounts or items of all transactions entered in the journal are posted.

This will be the basis for the preparation of the balance sheet and the profit and loss statement covering the operation of the business. No entry shall be made in the ledger unless said entry originates from the journal.

C. Subsidiary Book - In the general ledger, accounts are usually transferred and grouped into certain accounts to a subsidiary book. This general ledger account is called control account.

Control accounts in the general ledger contain summarized information that is recorded in detail in a subsidiary book or ledger. It is, therefore, the control account which contains summarized information and the subsidiary ledger contains the same information but in detail.

All corporations, companies, partnerships or persons required by law to pay internal revenue taxes have the option to keep this kind of book depending on the need of their business, provided that where such books are kept, they shall form part of the accounting records of the taxpayer and shall be subject to the same rules and regulations as to their keeping, translation, production and inspection as are applicable to the journal and the ledger.

D. Computerized Accounting System - This method of accounting is now being used by most companies. It is a system whereby information are fed into the computer thus providing uniformity in the processing of transactions.

Types of System under this method are the following:

    1. Simple System. Transactions are easily traced in a small computer system where the primary function performed is the sorting and manipulation of input data and the printing of output reports. There is no loss of audit trail. Audit of this type of system requires little training and background in Information Systems (IS).
    2. Complex System. This is characterized by the batch processing mode, the existence of one Central Processing Unit (CPU) and the extensive use of master files on magnetic media in processing. In this type of system, processing is usually confined to calculations, extensions, summarizations and the like. There is some loss of audit trail but the same is not significant.
    3. Sophisticated System. In this type of system, transactions are initiated within the computer. There is extensive data processing and consequently, a substantial loss of audit trail. Most of the output is in machine- readable form.

 Reference: RAMO 1-2000